i think it is probably too early to hit the fed. -- fade the fed.r theory is the fed will hike rates in june, and continue telling the markets that they will probably try to get another one in this year. jonathan: for em more broadly, is it a favorable environment from the federal reserve? when you factor in your view on the federal reserve, looking at em's specifically, do you see a complacency? >> no, i do not. the key asset price for us in emerging markets is the u.s. dollar. when you take the reflation trade out of the treasury market, we have also done so aggressively in the u.s. dollar. a weaker dollar historically is always great for emerging markets. this is actually a virtual cycle kind of period in emerging markets where inflows are coming in, currencies are appreciating, central banks are lowering interest rates, growth aspects are improving. we are in a pretty good spot, actually. >> i am struck by the optimism not reflected in some of the numbers we have seen in the first quarter. i am looking in particular at some of the household debt

fed decision .up, more reaction to the fed. what it means for equities. are we knew the top? we will be -- from washington and new york, this is bloomberg. ♪ >> is 2:00 p.m. in new york and 8:00 p.m. in london. i am scarlet fu. welcome to bloomberg markets. ♪ julia: we are alive and bloomberg world headquarters in new york over the next hour, plus covering stories out of washington, berlin, and palestine. here are the top stories we're covering on bloomberg and around the world. markets, one hours left in the trading day and stocks are paring losses. this after the fed announced it is leaving rates unchanged, signaling it is not concerned about the recent slowdown in economic growth. theolitics, the fate of health-care bill hangs in the balance with the trump administration saying the house is just two or three votes shy of a majority. will they get it done this time around or will it be another blow to the president's agenda? plus, do not bet against warren buffett. one investor who tried and faile

if you look at the new york fed survey, that is primarily what is being said to the new york fed.n two and a half years, there is a 20% probability that the fed will have to revisit the lower bound. this is not news to anyone. jonathan: i was speaking to an investor for the new york fed earlier this week who said that they made the phone call. they wanted to know why this week was so different and why suddenly the market was reacting to the drama in d.c. what was your view on that? matt: at the end of the day, there are stories coming out that are making people question the longevity of what the administration is going to be able to put through. keep in mind, we are expecting and hoping we will get progress on health care reform. we are expecting and hoping to get progress on tax reform. i think all of these complications may just extend the timeline. i think investors get worried when you talk about extending the timeline. jonathan: let's be clear with something. with the inflation trade -- we have seen fading in the reflation trade for quite a while. spreads are getting flatter.

louis fed said.t has moved in the opposite direction, and this may suggest that the contemplative path is too aggressive. i know a lot of viewers will be have a vote doesn't and doesn't set the tone anymore. what can that argument bleed through the rest of it? >> bond market is pricing a pretty gradual as it is. i do not think james bullard has much to worry about from the bond market perspective. ifhe fed continueso hike rate, hethe suggested may not be happy with that. but the monde market is on -- the bond market is on his page. jonathan: we have broken 100 basis points. down toward 90. is there a message in the curve for the fed? >> yes, it is that the more they hike, the more long-term growth will come down. it will be a problem. the economy is not accelerating. jonathan: why do you see a steeper curve from here? >> part of it is the idea that the more the fed hikes interest rates, the closer they will come to the point that they will have to start cutting interest rates again. this is what they

sayontinue to see the fed that.the nexto happen couple months for these two to line up once again? russell: i agree we need to see the economic data. consumer data stalled in the first quarter. consumer fundamentals are very -- in very good shape. earlier this week we had the personal spending and income report. wages and salaries the most important component of personal income, was up 5%, year over year. the private sector wages and salaries were up almost 6%. consumers are in very good shape. there is no reason we cannot see consumers come back and spend a little bit faster. their debt levels are relatively low. the fundamentals are there for the economy to rebound fairly soundly. yvonne: is inflation the wildcard? we saw pce inflation go the opposite way from the fed target of 2%, 1.8% in march? now that we see oil over again, this soft data or downward pressures persist, could it still be live in june? russell: it could be. if we remain soft and inflation data remains soft as well, the march figures are certainl

when the fed reduces their balance sheet, the fed is going to have to make up for that.oupon prices are going up. that could cause term premium on the back end of the curve to rise. complex.hink it is i wrote a story about that, and i got a lot of pushback on that. it is not so clear. jonathan: what are the arguments? lisa: first of all, you have an aging population piling more into long-term debt. it is political to increase the deficit. any rolling off of the balance sheet would be so glacial, it would have no effect. these lead to not that big of a move. matthew: i think we are talking about two different time frames. over the long-term, interest rates will find it hard to move higher. our forecast for the 10-year at the end of the year, is 250. i'm not looking for higher interest rates myself. jonathan: i keep asking this question, have we seen it yet? matthew: it depends on what the administration will get done by the august recess. coming up next on this program, it is the auction block. forstors in brazil bracing impeachment, the sequel. this is "bloomberg real yi

louis fed president. his thoughts on the plans to reduce the balance sheet and how many rate hikes do we really need here in the u.s.? this is bloomberg. ♪ betty: this is daybreak asia. i am betty liu in new york. yvonne: i am yvonne man in hong kong. bmw is said to halt car production in china and south africa for at least one day as it grapples with a shortage of steering parts. production at the plant has been suspended since friday. the facility in unit has been affected. thes being reported that problem stems from an unidentified italian supplier, which has been unable to make the deliveries required by bmw. betty: warren buffett has bought a 3% stake in german chemicals whose shares soared in frankfurt. the stocks rose by almost 7% at berkshire hathaway. one of the company's tops it shareholders. it is transforming itself into one of the leading makers of lubricants and flame retardants. yvonne: mitsubishi ufj is boosting the rising cost of funding overseas expansion. they have appointed 50 relation

bernanke: what the fed has done, let's look back. the fed's policies are very criticized. people were saying, they were going to create hyperinflation. we looked at at at autonomy that is much better off than it was a few years ago. we have had low and stable inflation, and a lot of job creation. helping the economy meet its potential and provide jobs, that is the best thing that central banks can do. the fed, however, does not have create better educational opportunities. it can't make factories more productive. those are things that the private sector and other policymakers have to be addressing. the fed has a certain number of things it can do and it's not fair to ask it to go be on the tools it has. tom: when you write volume two, melzer would tell you you must write a volume two, "the courage to act," there's a single sentence in your book, and it is president obama, you people are shellshocked. and it simply goes, how did we get to this point? he just quietly says that. how do you respond to american saying, how did we get to this point? mr. bernanke: the crisis itse

were they shaken by last wednesday's selloff so much that we are back to the old fed, or is the fed goingo try to lead markets? jonathan: joining me around the table is greg peters, bonnie wongtrakool, and in st. louis we , we have brian rehling. brian, i want to begin with you and talk about this issue around the balance sheet. is it going to be as boring as the federal reserve suggests and hopes? brian: absolutely. the whole point for the fed is to not use the balance sheet reduction as a policy tool, in my opinion. they used it once they wanted to drive rates lower and the point is to get out of this with no disruption. jonathan: this will not be a policy tool for those hoping they would move on balance sheet and pause on rates. will they be disappointed? gregory: i think so. i am not sure it will be as boring as the fed thinks. just because they say it will be boring, does not mean it will be boring. it introduces each fed meeting into play. they are talking about slow and steady but at the end of the day, they have to readjust, and what happens when the economy slows down and the sig

louis's fed president joins us. kathleen hays is watching all of the fed speakers.e was saying it will be an uneventful thing for the market. >> he can say all he wants and fed officials have. are market investors understandably wondering what will happen. betty: this has never happened before. we know the fed signal they wanted to start balance sheet reductions. the minutes of the march meeting got the conversation going more. for the first time, the fed outlined potential steps for how they will do this. john williams said in prepared remarks and in a great interview yesterday in singapore that it will be the most telegraphed move ever. he cannot give details or tell us how much they will reduce the balance sheet, but it is coming soon. here is what he said. >> is the balance sheet going to have two dollars trillion? i am not making decisions. we have not made decisions. i am not trying to communicate a decision. i think that is the right way to think about the endpoint of this. let's communicate with a bloomberg chart. i want to see how small the balance sheet wa

following the fed for us.eeds to navigate and this discouraging or not as good data by keeping june or july? the seasonality problem that the united states is had for the last couple of first quarters, they could blame it on -- they could blame it on that. when you talk about gdp and gross, you could say, we will wait and see. acknowledging it was weak it we will wait and see because we don't have to do anything until june. no new economic forecast so no reason to do anything. tom: some excitement here. we had excitement with the war andt and the civil andrew jackson. yesterday he went after the government shutdown. as janet yellen distracted by the power game in washington? well, it is clear that andrew jackson would not have raised rates in march. but other than that, no. [laughter] michael: she has always been able to shut out politics. intoannot incorporate this your forecast. so you go with what you can and tells us that they could stick with the forecast for two more this year. tom: i want to go back to

louis fed president 24 hours ago.to charlie evans, but they are raising the question about why inflation numbers are softening so much. they are getting farther from the target. if they continue, that is what lael brainard said. she may have to rethink her view on where the fed is heading. for she said the economy looks stronger, global economy picking up, but here is what the issues are. tensionso, i see some between signs the economy is in the neighborhood of full employment, and assigns the tentative progress we have seen on inflation may be slowing. is that tension between the progress on employment and lack of progress on inflation persists, it may lead me to reassess the expected path of policy in the future, although it is premature to make that call today. kathleen: she devoted a very large portion of her speech -- that is what she jumped into right out of the gate -- to looking at the pce deflator that is the fed's main gauge of inflation. at the core deflator, which takes out food and energy. it happens toda

martin: first and foremost, i think the fed. do think that the fed are probably a little dismayed at that using a financial conditions -- at that using we have seen of financial conditions. vonnie: we have to leave it there. martin hegarty at black rock. a conversation with charles evans of the chicago fed. he joins us live from the aci world congress. that is at 10:30 a.m. do your and your time. here is emma chandra. the trump administration is starting the fight to end the volcker rule. steve mnuchin has ordered five agencies to review the restriction that bars banks from betting on markets with their own capital. critics say the volcker rule has made banks to conservative and has dried up liquidity in certain markets. president trump is firing back at the fbi director he dismissed. the president tweeted that james comey better hope that there are no tapes of their conversations. according to "the new york times," , he declined to pledge loyalty to president trump in january. he says he asked for come is loyalty more than once

>> not the fed itself. the fed is a nonpartisan institution.s from congress, from the presidency, at this point? >> i do worry about it. and obviously there's been various bills and proposals to curtail the fed's independence which i think would be a big mistake. i think, though, to some extent it's not so much that the fed's actions are causing partisan reaction. i think in some sense the high level of partisanship is causing the reaction to the fed. in the sense that republicans republicans in particular. i was appointed by george w. bush and he was very sympathetic to the independence of the fed. very good on those counts. but i think perhaps because the congress perceives the fed as having been supportive of obama's recovery perhaps or whatever reason it's now an article of partisan faith to be aggressive against -- >> people blame you for that. people blame the extraordinary actions -- >> it's the extraordinary actions and the fed doing things that had such a huge impact on the economy that hadn't before that probably changed a lot of peop

i am not sure it will be as boring as the fed thinks. it introduces each fed meeting into play.hey are talking about slow and steady but at the end of the day , they have to readjust, and what happens when the economy is,s down and the signaling we need to actually reduce the number, not increase the number? i am not as convinced. annie: i think the fed did very good job in communicating a well-thought-out plan, and this increasing cap structure is one that gives a lot of credence to the market. target participants have been grappling with it and it puts it at ease. treasury maturities being very lumpy in 2018. with this cap structure we know that will not be an issue. it assures the market there will not be asset sales, so if there was a fixed amount they had to buy if there were not enough mortgages prepaying, with a be selling mortgages into the market? they will not do that. if there will be some episode where we have a flight to quality treasury rally we will see a bit of a countercyclical balance under the structure. jonathan: i sat down with mohamed el-erian a few years a

the fed seems to have changed their tune.uess they don't have a set of exit principles at this late date. i have read that they are planning on tricking the balance sheet as early as the fourth order of this year. they are new doing -- not doing any favors to themselves that we still don't know what they have in mind. the sooner they come out with principles, the easier the markets can adjust. it is easier that the treasury can know what their forecast should be. >> you have written that the fed needs to take into account financial conditions. mr. warsh: i will say the fed is very comfortable. if you read the speeches from many my friends still at the fed, they think the economy is the nine, and financial conditions are perfectly fair values. i don't know. hooverot my job here at to be opining. i don't think they should have total confidence that they are so pleased in the state of credit markets. ultimately their biggest job is to mitigate the risks of the next financial shock. i see too much complacency in financial markets

louis fed.out washington has to deliver at some point in order for equities rallies to continue. do you think the markets have taken their eye off the ball in terms of expecting president trump to deliver on the fiscal and reflationary trade fronts? reporter: i think in terms of what's going on with the markets right now, a lot of what has said when we first saw the leak from fbi director james comey, fundamentals supporting market sentiment, i think as richard mentioned earlier, expects progrowth policies, that is something the market is still waiting. political noise can interrupt the market. in the long-term, i think fundamental indicators themselves will drive markets. haidi: what drives the next leg in terms of emerging markets rally? do you expect that has further to run? reporter: i think what we see with the emerging markets right now, especially in asia, many markets are pushing recent highs. it depends on the situation. added be looking toward advanced economies. it is being led by wha

inflation not showing what the fed wants to see. the fed included this statement.enerals agree it would be prudent to await information indicating the slow running -- the slow pace before taking another step to remove accommodation. they have opened the door to looking at the data in the next three weeks, discussing it, deciding if something more permanent could happen or if they could go ahead and do the june rate hike. yvonne: they have opened the door to the discussion on balance sheet lands and when it starts to unwind things. they want to impose caps. how will that work? sheet,n: the balance let's say $100 billion of bonds will mature. $100are taking that whole billion and reinvesting it. under the new plan, they will set a cap. instead of reinvesting everything, we will allow up to $10 billion to actually run off. that is what they would cap. anything under the cap would be reinvested. every three months we will watch the markets, raise that cash. more bonds will actually roll off. they will keep those caps in place until the balance sheet is normalize. they

louis fed president james bullard and san francisco fed president john williams. >>> in the headlinesleon couperman's omega advisers reaching a settlement with the s.e.c. on insider trader claims. landon dowdy has the story. >> reporter: the firm has settled with the agency for 4$48 million. the hedge fund has admitted to no wrongdoing and cooperman will not be barred or suspended from the industry. in a statement to cnbc, cooperman says he looks forward to putting the matter behind him. last september the s.e.c. accused cooperman of insider trading following a five-year investigation. the following month he told "squawk box" he would fight the accusation accusations. >> omega was built on doing detailed fundamental research and complying with the law. we could have settled with the s.e.c. for an amount that is far less -- far less than i donate to charity on an annual basis. but i refuse to do so because i know we acted appropriately and lawfully. it took me 50 years of hard work, very long hours, playing by the rules to get where i am professionally. i'm not going to let them basica

the fed said u.s.ons fell short of complying with the banks secrecy act which requires federalto prevent transactions. the cease-and-desist order -- layingto prevent out a plan to sell 25% of the nationalized lender. the government plans to sell the stake in a share offering in london and dublin with terms to be set in mid-june. according to previous government estimates, the sale may raise about 3 billion euros. to vendee ceo is poised succeed the executive chairman of telecom italia. he could handoff the baton as the nextomorrow when board meeting is scheduled. that comes after eu regulators approve the plan to take control of telecom italia yesterday. that was your bloomberg business flash. manus: selfie, thank you very much. -- sophie, thank you. of has gone out of his comfort zone and travel to south america. it's a big step, a bold step just a pick up on what you're saying about brazil. this is interesting, we're seeing a bit of turmoil in the political front across emerging markets, but i like t

we are waiting for the fed.that a market risk that we need to be thinking about this morning or do you think the fed statement will deliver very little? something to think about. stocks higher and the market open is next. andh vw and bnp paribas novo nordisk. three stocks to keep an eye on. this is bloomberg. ♪ guy: let us talk about where we think we are going to open. it will not be a particularly dynamic start. very much a market driven by earnings. market of stocks rather than a stock market. let us talk about what the headline numbers look like. up by less than .1%. similar story for the ftse. cac not moving. dax not moving. -- it comes to some of these individual stock market. i am told by people who know more about it that vw was not a nzrprise, but allia was. certainly beating on a number of key metrics. we will watch and see how that open -- that stock opens as well. the political risk and policy risk is still there. andce coming out, remember, the fed tonight. let us libor that. let us show you what is

in number of fed officials have spoken. the fed core measure is moving in the wrong direction. does that play into the fed narrative? it.esterday talking about of energy prices has been true around the world, a global inflation story up and down as oil prices go up and down. and strip that out in the last 58 months. inflatione an problem? the general consensus is wait a few months. it is a lot of reading and do they have to be -- >> does the ecb have to start tapering? here is what they are trying to do. interest rates come the fed funds rate high enough that they can cut it again if the economy turns down. they would like to go up as high as 200 basis points, a two percent range the they probably will not get there very quickly. that is the real goal here. , becauset as well inflation is not going up but it is not going down either, the interest rate sensitive economy are the ones being effected right now. why not go ahead and do that and take out a little insurance? i suggest probably that mario draghi would like to be able to do that if he could but he has got a different se

we will talk about the fed a little bit more. no change from the fed.e will digest all of what that means. this is bloomberg. ♪ >> 2:30 in tokyo. a glorious day over the emperor's palace. the dollar-yen on your screen. it has been rising six days in a row. we have not seen a run like this on the dollar since october 6, 2016. gdp,ed sees first-quarter and we trade that a little bit higher. : we will get an update on the markets right now. nejra: we have still got japan equity markets closed overall. no treasuries trading in japan. hong kong shares are dropping after the holiday. the shanghai composite, the third day of declines. investors are weighing government efforts to limit the government impact. this has made chinese shares among the world's for his performances this month. meanwhile, bond yields have risen to the highest levels since 2015. the shanghai composite is sagging below the 200 day moving average on this chart. this is u.s. stocks against em stocks. the 120 correlation between the two has fallen to the lowest levels january 1995 when the

but, for example, minneapolis fed has been very vocal about saying the fed should release a transparent plan just in the off chance that markets do have an outsized reaction. >> what more would they have to do to be more transparent? they've been signaling this is going to come and they're going to do it and they're going to do it very gradually. i guess the market reaction is, hey, we know it's coming and there are other forces in the market, the economy, the presidential agenda and so on and so forth, the change and the attitude of the business, that seem now to be trumping the fed. >> no pup intended. >> sort of intended. >> the balance sheet is part of the equation but it's only one part of the equation. if they start tightening the balance sheet, letting things roll off but economic data is improving or it looks like we're closer to getting tax reform that could help growth or more deregulation, i think he cequit again, can look through this and stay supported. right now we see u.s. data softening a little bit. if we were in that regime and doing quantitative tightening i think sto

one i as always on the fed, we will be speaking to the former fed chairman.e will be bringing the former fed germans take on where we are right now. he is still with us here on daybreak europe. what are your thoughts on the fed? how many do we get from here? fed, three andke 2017, 50-50. >> we are on the less rate hikes, a shallow curve. the numbers are not coming in. we saw a different from the upward rise in trends and it will make it difficult for the fed to step on the brakes. as they said earlier, the labor market in the u.s. is strengthening well. on limits down to 4.5. earnings growth picking up. participation ratio improving as well. the fed is going to look at that and say that is really important. things are tight so we need to client base down. one in june, one in september and we are done for 2017. >> a battle to have got to eight, do not be fooled. the fed is more of a duck than a decoy. more duck them decoy. basically you have a calm demeanor at this meeting. there is a vigorous paddling going on underneath. what they really want is to zero in o

i just think the fed, if i was advising the fed i would say, go slow, we don't see inflation getting out of hand, if you start doing something with the balance sheet too early, that will cause up-evil in the financial markets and we are right back to be a drag in the economy. >> market positive. cheryl: we are watching the dow turning positive on this. we are close to 21,000 number, a lot could happen in the last two hours of trading. 20,950. 21,000 could be coming and also, i had to say this adam, i was wondering if they were going to mention anything about global growth in the statement, i didn't hear you say something about whether it was central bank actions in europe or japan. was that in the statement? have you had a chance to look? adam: no, i i have had a chance to look. even as growth and economic activity slowed and then the slight change in language was job gains were solid on average. the last time they said job gains remained solid but then there was a comment too about prices excluding energy and food consumer prices declined in march and then, of course, reference to t

the fed is on rails. it was a cautious fed. it is a fed that wants to normalize policy.ve reason to do that. the only thing that can completely put them off rail is if inflation rose. that would have to be q2 consumer being weak again, or a big collapse in international financial conditions, or a mixed -- or a much bigger accident in china because of tightening. the fed tou expect be able to reduce its balance sheet significantly in the next couple years, or will they be so conservative and cautious that we will not notice that? >> both. i think they will reduce their balance sheets, but significantly, i don't know what the definition of that is. i know they are looking to reduce it i about $650 billion. diminish, ings don't think you will see a material impact on stocks. there has been a lot done by the fed themselves. i agree that there is probably one more rate hike, but it is towards the balance sheet unwind, and they will step back. that is why we're looking at hikes in june and not december. i do not think the markets are going to collapse on the basis of just that

i would expect the fed and hope that the fed would continue its normalization.hat view? everythingeed with glenn said, and i think he said a more articulate than i could have. [laughter] david: who would've thought? be stayingrd will with this. alan krueger, thank you for your time. coming up, we will give you a fresh reaction to the jobs' report and from the white house itself. director of to the national -- of the national council, gary cohn. from new york and from washington, this is bloomberg. ♪ ♪ david: this is bloomberg. i'm david westin. glenn hubbard is still with us. i want to talk about policy because you suggested that it is a --that it is not up to fed policy to fix what ails us. it is up to fiscal policy. what can be done by the government, not the fed, to address some of the things like participation rates in productivity issues. glenn: there are a number of things that could be done, david. i would start with tax reform. but the reform, if it is focused , perfectly taxation corporate taxation, it could have quite significant effects on investment

than the fed? michael c.: i think there was a lot of euphoria talking about grow growth -- pro growth and reform, and it will be difficult to implement these policies so the markets are reacting to some extent to the hard data as opposed to the soft data which has been strong. the markets will continue to look at the data as it comes in as the fed does. alix: this is a problem because when you have some fed officials putting fiscal stimulus in their weecast and others don't, cannot trust the dots anymore and it makes their projection less relevant. michael: you will have a completely new fed next year if janet yellen and stanley fischer are gone, so you cannot go too far out on the dot plot and put a lot of stock in what they are saying will happen. through the end of the year it is clear there will not be fiscal stimulus so you are fairly safe with the projection for two more rate moves. after that, nobody knows. months ago couple of when we had the big short and the treasury market, you were one

that suggests the fed continues on their course. >> it is consistent with the fed hiking but not withconomic takeoff. jonathan: joining me today is global management, hickmore, andke priscilla hancock. luke, welcome to new york city. let's begin. the consensus view is june there will be a move. luke: and i guess when the next one is. june is baked in. markets are adjusted for. if we get september, that takes us to three next year. that means we will talk about the number of rates next year. jonathan: this feels sequential, every other meeting with a news conference despite the data not because of it. what is your view on that? mike: i think it is because of the data. i think there is strong enough information in this job's number and the jobs numbers we have had for the last year, the fed really wants to remove the extraordinary level of accommodation they have given to these markets. they want to be a buffer in the event that things get weaker in the future. they have no room to do that now. we think there will be hikes this year and next year. also tapering, that is something that i

will the fed come down with its fed futures forecast or will the market adjust to the upside?he course of 2016 we actually saw this sort of fed converge to the market. our own assessment is the market is too complacent. the fed wants to tighten policy. one interesting thing that has happened this year is since the fed increased interest rates in december and march, financial conditions in the united states have gotten easier. so the markets are saying go on. we don't mind. we don't care. keep on going. we don't think you will be raising rates as far as you think. the fed is saying the market is perfectly relaxed about this, so we'll keep raising rates. one of those two things will come into conflict. we think it's more the market than the fed over the course of the year and next. >> you think poorer than expected data for the u.s. in the first quarter including the gdp, and we'll see another revision today, you think that was an anberration and short-tem yields will rise. >> that's correct. the quarterly numbers are volatile. the bottom line is that the u.s. economy is growing

the fed. and its statement.don't expect the hype today, however, the language would be interesting. steve liesman joins us from the fed in d.c. we know the fed's not going to do anything today, but is the fed going to lay the groundwork for a hike at the next meeting? >> i don't think explicitly. the market is listening to the fed today is how does it deal with the recent economic weakness and some uncertainties out there. it's expected to mostly look through them, but you can imagine different scenarios where the fed says oh, wait, there's all this weakness in the economy. we're bringing the process to a full stop here or you know what, we really dismiss ilt, we see this transitory, the recent decloin in inflation, there's plenty of uncertainty out there. the whole fiscal stimulus story seems to be a muddle. the best guess is that the fed looks through that and tries to keep the market on track thinking about essentially a 61% problem b bability. >> how can the fed make a decision on rates until it really sees

that's the ecb , now back to the fed.al reserve bank of san francisco president john williams says the fed has a good strategy of monetary policy, three rate hikes this year makes sense. sticking exclusively to haslinda amin, he says the economy is growing nicely and the data on employment has been stronger than expected, but more needs to be done to tackle inflation. make suretching to that we see signs of inflation trends moving back to 2%. i am committed to seeing it reach that 2% goal and be there on a sustained basis. there is background to this. we have been below are inflation goal for seven or eight years and i do worry that we don't want it to get embedded in inflation expectations. so you are right, i want to see inflation get back to 2% on a sustained basis. zurich,ining us from the chief economist at -- thanks so much for joining us. let me ask first of all what you take from that interview with john williams. is it just going to be goldilocks portage? not too hot, not too cold? >> well, kind of. we are quite

is the fed afraid of markets?ted on whether it is asset crisis or market on policy like the balance sheets, needing to calibrate the response, and we are getting it wrong? inthey are overly gradualist their thinking. you will hear sometimes from fed speakers that they know rates have to get to a certain point in the long run. they want to move slowly so as not to upset markets. that means you are not reacting as much as you should to economic changes and economic conditions. you are moving slowly to protect markets. julia: you can't be read to list gradualist and afraid of growth, can you? factthink in terms of, the , the reason they are raising rates now is because they don't want to raise them fast later. it is the fear of moving quickly later which is making them move slowly now. on the -- infrastructure bit, this excited people after the election. .tocks shot up is the case for infrastructure about the demand that there will be more spending, more spending creates more demand? or is it that and a -- an economy

it is a new fed in the sense that the fed is content to lead markets rather than to follow. >> peter,nwhile, the markets both stock and bond markets, have kind of been at a standstill for the last week or so waiting for the fete gd gett into may. what's your sense of the field position when it comes to the stock market basically unable to take out the old highs and really taking a bit of a breather today? >> yeah, we're actually quite concerned about that. we put out a piece yesterday that discussed a little bit, you know, the sell in may go away cliche, if you will. we think there's actually a reason for it. since 2004, june returns have actually on average been negative by about a percent. we feel that momentum right now is diverging from price meaning we pushed into new highs but momentums have not confirmed that. given season aality and the fac that we've had very strong earnings but relative to easiest comp since the first quarter of 2012, we think that tailwind is probably behind the markets and markets probably need to take a breather now going into the summer months, which wou

anna: fed minutes signal of june hike. what happens next? >> oil ministers are set to extend opec led cuts for another nine months. and made to call for data partners to step up the fight against terrorism but transatlantic tensions rise over u.s. leaks about the manchester attack. anna: a warm welcome to "bloomberg daybreak: europe." i'm anna edwards. matt: and i'm matt miller here in berlin. risk let's put up the radar and show everybody where we are on the overnight session, the asian trading day higher on equities. the msci asia-pacific of 5.8%. of by .8% for the price of a barrel of crude. were indiana and will get more from manus shortly on the program indiana. the russians talking about the option for a further extension. so these facts very much in focus and is the move in the dollar, a little weaker on those sentiments. concerns about inflation lead to questions about what happens thereafter. matt: that was interesting to me, we saw treasuries yesterday actually get on up, which at that was fascinating, after the notes came, the min

the fed said softness was issues withperhaps seasonality in q1. is the fed wrong?to a lack of momentum within the economy? nouriel: no, the fed is not wrong. seasonalitydual every time there is a first quarter number, and other temporary factors of one sort or another. if you have 0.7% and close to 2.5%, 3%, you're still averaging 2%. i do not think the economy will grow much more than the potential. in the u.s. is between 1.75% and 2%. be closer tocan 2.5%. but we are close to full employment. the fed will tighten more and that will slow down economic growth and a tightening of financial conditions. therefore, we cannot systematically draw more than 2%. i do not think the policies of trump will increase growth. ,ulia: what is the probability how low is it, we get fiscal stimulus infrastructure from president trump this year? spendinginfrastructure is now on the back burner. they tried with health care, repeal and replace, they failed. doing tax reform will be a royal mess. they will combine tax reform with infrastructure spending. they said they will do tax for no

also, as we await the fed minutes and the next fed meeting, it's worth looking at break evens. market proxy for inflation expectations. the line is the election and then we had a big reflation trade after the election. we have been seeing those break evens come back down with inflation expectations coming down. this is also reflected in the u.s. dollar. the dollar index recently has really been in a downtrend. here it is going back to may 9. since then, it is only had two trading days where it was higher so it has lost a combined 2% since that time. at andng else to look think about as we await the fed minutes is the balance sheet of the fed. and other central banks because not only is there the lingering question of when we will see the fed continue to raise rates but it's also how and when and to what degree is it going to perhaps work down its balance sheet. this is a look at the balance sheet of the federal reserve in white and the bank of japan is in purple and you have the ecb in aqua. one reason you see the others attach up is because of the weakness of the u.s. dollar.

is because bernanke agrees the fed doesn't have that far to go, he thinks the fed can get there graduallyo the fed should be cautious seeing no immediate threat from inflation. bernanke said there's no reason to pick a hawk or dove because they don't often voting that way once they get on the fed board. bernanke advised the president to choose independent thinkers who do what's best based on long-run needs of the economy, sarah. >> steve, thank you. i thought it was interesting what he said about border adjustment tax. did he sort of endorse it? very open-minded. >> it's been a dilemma for a lot of economists. a lot of smart economists on both sides of the aisle like this idea. one of the ideas comes from a more left of center economist. that's one source of it. what he says is, look, it's a good idea and compelling idea. interested in it. thinks there's a big problem in implementing it and he's concerned about the adjustment period where the things like strength of a dollar that are supposed to happen cause this economic dislocation in the time period when the economy adjusts. >> we know

fed president and the dallas fed president.hey report make it was a sense of what might be behind those job numbers in march. we will get a report on wholesale inventories. at 1:00 this afternoon, the u.s. treasury is scheduled to have $1.3 billion in notes. jonathan: an uncomfortable come -- calm. now is michael, chief global strategist and be a mow capital markets fixed income strategist, michael. that begin with the idea this is some kind of fear gauge. can you read that a part for me, looking at volatility and what that actually means? michael: the vix is a judgment from the market about what expected volatility will be going forward. this calm hasif to be so uncomfortable. if you look at realized volatility, it can go much and what you found was in 1963 and 1964 and 1965, you in theday realized threes on the fourth. by comparison, today we're 7, 8, or high six. in 19631964, -- i do not think there is an immutable law that 9.5 has to be bought. we may even make history in the jonathan: that was the problem a historical rang

affect aheads this of a fed announcement later? >> we are expecting the fed to raise rates in june.re looking for more moves this year. one in the first quarter of next year. it's a gradual process. it is still data dependent. the next is what happens to the balance sheet. the extent to which that gets fleshed out. mark: taper tantrum part two or not? >> li na. the fed is going to be very cautious about what it does with the balance sheet. there could be a trade-off. it is still steady as she goes in terms of taking away that accommodation. our view is it probably won't lead to a massive market disturbance. mark: the implications for the peak in yield and the u.s. dollar going forward. >> u.s. treasury yields higher. we've got a 12 month target of 3% on 10 year. we see the dollar generally stronger. on theo has bounced washing out of political risk. mark: has sterling seen its highs or not? some say we have seen the worst of the brexit noise which means sterling could rise. some say it will continue. where do you live? will intensify from here. we're just getting into the debates. c

inflation is that the feds target. the fed is going to be more comfortable normalizing the process.he fed can take a cautious and planned full way of looking at rates. that's part of the market pressure as well. oil being in that 45-55 range is not likely to bump up to 60. inflation stability right now is a non-troubling component of this analysis. jonathan: great to have you with us on the program. ,re very own gina martin adams for a faculty. -- are very own gina martin adams, thankful to you. from new york city to our viewers worldwide, you're watching bloomberg. ♪ emma: this is "bloomberg daybreak." coming up later, charles evans, federal reserve bank of chicago president. david: this is bloomberg. i'm david westin. retail sales numbers were out an hour ago and jcpenney has joined department store rivals and reporting disappointing sales for the first quarter. joining us now is senior consumer analyst steve mistral and shelly banjo. stephen let's start with you on the retail sales numbers overall. as bad as lastt month, but still not exciting. >> not as good as people were expec

fed to continue.y have seen the mark its repricing hikes, aftere june, what happens with inflation of the tick alert, gdp health first quarter, and the week in various sex is, what ,appens with the balance sheet in the early stages at the moment. my feeling is the market will focus on communication after the hike if there is a hike in june and very like leaving rice the yield curve, looking forward to the second half of the year. >> on that yield curve, obviously, we have seen it flatten over the past few months , do you expect that to change and what will drive it? will it either balance sheet unwinding, placement dictations eking out? >> to be fair, we have seen the moderately tong the issue of the balance sheets. ofely a small scale change balance reduction. ,o me it is all about inflation term premium and term structure. amounts belowo fed expectations. that has to eat to a broader repricing. ofething new maybe in terms measurement issues, we have seen how such a small change vacation significante

what does the fed do?s it change course as a >> the fed is faced with a persistent low-inflation environment. expected inflation to rise, it has not happened. one is to basically declare victory and say 1.6%, and that is close to our target as long as we can credibly believe inflation is heading to 2%. we are thick -- we can see that they are heading along those lines. basically you start to think, mainly unemployment can be lower, at the rate of unemployment is too high and overtime, we will have to bring it down further. that is another avenue fed officials will think about more aggressively over the second half of the year if indeed inflation stays low. terminal,ooking at my basically a chart breaking down inflation and a bunch of different ways. the fed index, headline inflation down at the bottom, housing, shockingly weak, showing how much housing has really had upward pressure on this. the bottom line is they all headed lower. what is the bottom underlying story? thing for the fed to say we have conf